Buy and hold in perpetuity vs exit plan

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Buy and hold in perpetuity vs exit plan

Matt R.

Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes

I am curious for those buy and hold investors.

Does anyone buy and hold for in perpetuity? Perhaps in family trusts etc..

Thanks,

Matt

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Bill Gulley

Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes

12y

Can you hold forever? Yes, should you is another question!

Residential properties change, neighborhoods change, homes become dysfunctional, market changes can take values down as well as up.

There are very few 100 year old homes in my area that remain desirable today.

Commercial can suffer similar issues.

Always have an exit, there are aspects beyond your control that can effect a property, the trick can be when to bail out before negative influences arrive.

There are several trusts that can be beneficial in holding good properties long term, just make sure there is flexibility built in to dump a property and move on to something else. :)

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Mark UpdegraffBusiness Member
Real Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 690 votes
12y
Yes. At the beginning of my investing I thought maybe I would exit, but I've always been in the long / hold mindset. I've created an irrevocable trust to house my assets naming my son as beneficiary. Now my wife and I just need to survive through the "look back" period and we're all set. That's a good thing to keep in mind if you are planning to go that route, especially if you wait until later in life....
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Jean BolgerPro Member
Aurora, CO · Member since 2012 · 2k+ posts · 1k+ votes
12y
If you have heirs it's a good way to go, as I understand it. The depreciation you would be taxed upon (if you sold) goes away when your heirs get the property. They can the sell or start depreciating all over again. (again, that's my understanding- I'm no tax expert)
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Duncan Taylor
Real Estate Investor · Member since 2013 · 866 posts · 487 votes
12y
If you are really going to hold forever and you really want to pass this on to your heirs...

Get a good estate planning attorney NOW because you want to get these assets into protected structures that can increase in value without ever hitting the estate tax exemption limit.

Over the years, I systematically moved income producing real estate into GRITs, GRATs and GRUTs and now no matter what happens it is all out of reach of the estate tax man and creditors. It will be there for as long as civilization exists and I have descendants to draw from it.

When I start buying again here in the US in late 2015 I will again systematically do it all over again.
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Matt R.
OP
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
Originally posted by @Duncan Taylor:
If you are really going to hold forever and you really want to pass this on to your heirs...
Get a good estate planning

Thanks guys/gals. It still amazes me how I can get professional and valuable advice in minutes.
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Matt R.
OP
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
Originally posted by @Mark Updegraff:
Yes. At the beginning of my investing I thought maybe I would exit, but I've always been in the long / hold mindset.

Thank you!
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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
Can you hold forever? Yes, should you is another question!

Residential properties change, neighborhoods change, homes become dysfunctional, market changes can take values down as well as up.

There are very few 100 year old homes in my area that remain desirable today.

Commercial can suffer similar issues.

Always have an exit, there are aspects beyond your control that can effect a property, the trick can be when to bail out before negative influences arrive.

There are several trusts that can be beneficial in holding good properties long term, just make sure there is flexibility built in to dump a property and move on to something else. :)
4 Reply
Greg Rulfs
Los Angeles, CA · Member since 2013 · 66 posts · 18 votes
12y
I've heard Robert Kiyosaki say that ideally he would never sell, rather, build equity, refinance and buy more properties. He would be referring to buy and holds. I like the idea in theory...

I can't speak to the tax/estate implications.
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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
Originally posted by @Greg Rulfs:
I've heard Robert Kiyosaki say that ideally he would never sell, rather, build equity, refinance and buy more properties. He would be referring to buy and holds. I like the idea in theory...

I can't speak to the tax/estate implications.

Not really wise advice from a guru. That can be a good way to get underwater, rents fall, cash flow goes down, caught with long term debt. If you look up most of the gurus, you'll find that those that didn't go to jail have been in bankruptcy, some have done both. Time is a factor. Buy, refi, repeat is a good strategy early on, later on you'll have other factors to consider. Can't really assume that in 50 years your third or fifth mortgage will be working well for you or your heirs. :)
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Greg Rulfs
Los Angeles, CA · Member since 2013 · 66 posts · 18 votes
12y
@Bill Gulley Absolutely, there's no rinse and repeat method!
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Matt R.
OP
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
Of course this method would take market conditions in to account.

If NYC Park Ave was going ultimately south, you would bail out , unlikely as that is.
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Matt R.
OP
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
I would agree Greg.
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David Krulac
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
12y
@Matt R.

An attorney I knew had 30-40 rentals. He confided to me that the properties were free and clear and many of them he actually built. He also told me that he made more from his rentals than he did from the law firm.

He still held the entire portfolio of properties when he passed at age 90, giving the properties to his relatives who continue to keep the properties and run the rentals, living off the income. 30-40 free and clear properties does provide a nice "side" income.

The "stepped up basis" provides that the inherited property transfers basis at the value at the date of death, which makes all the capital gains unrealized during the owner's lifetime tax free.

This attorney had the same portfolio for maybe 40+ years, he never bought any more property and never sold any of his rental properties. Why kill the golden goose?

There is an excellent book called "Buy and Hold" by David Schumacher, that deals with buying and never selling.
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Matt R.
OP
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
Originally posted by @David Krulac:
@Matt R.
An attorney I knew had 30-40 rentals. He confided to me that the properties were free and clear and many of them he actually built. He also told me that he made more from his rentals than he did from the law firm.

Thanks David, great story and makes tax sense. I will check out that book recommendation.

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Elizabeth Colegrove
Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
12y
We are buy and hold investors. Our goal is to use the cash flow to live off when my husband retires from the navy. Therefore we will exchange when it make sense otherwise we are planning on holding. Unfortunately houses do "depreciate".
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Jerry W.Pro Member
Moderator
Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
12y
@Duncan Taylor , I have not been very active the last few years in estate planning due an interesting job I took on. I was wondering how you got past the 50% generation skipping tax and the vest within a life in being and 21 years rule against perpetuites? if you don't mind sharing.
1 Reply
Duncan Taylor
Real Estate Investor · Member since 2013 · 866 posts · 487 votes
12y
@Jerry W.,

If I knew all the intricate workings of it I wouldn't need to hire talented lawyers like yourself. :-)

But, here is my working understanding of it.

My GRATs and GRUTs end up passing appreciated assets to the beneficiaries of the trust when the GRAT or GRUT terminates. I mostly use GRATs, my kids favor GRUTs. Since these are zeroed out, there is no gift tax. The GST doesn't come into play because the beneficiaries are my children and their spouses. They do the same for their children. I expect it to repeat unless Congress changes the law and then it will be replaced with something else. They can change the rules like they did to get rid of GRITs in 1990 but the game goes on.

Honestly, I think my head would explode if I had to understand all the details. But, the net-net is once you get to the point where you are beyond the exclusion limit for estate taxes to kick in, every single penny I spend on estate planning seems to return to me dressed up like a dollar.
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Jerry W.Pro Member
Moderator
Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
12y
Ah @Duncan Taylor , I see now. You took the sneaky route to avoid taxes. You took advantage of the tax laws that you can only use once, then educated your children so they know how to do the same. Very sly, I hope the government doesn't try to close that loophole.
1 Reply
Duncan Taylor
Real Estate Investor · Member since 2013 · 866 posts · 487 votes
12y
Originally posted by @Jerry W.:
Ah @Duncan Taylor , I see now. You took the sneaky route to avoid taxes. You took advantage of the tax laws that you can only use once, then educated your children so they know how to do the same. Very sly, I hope the government doesn't try to close that loophole.

One of the few advantages of having a Congress full of millionaires is their long term goals are very safely in line with mine regardless of party affiliation. ;-)
1 Reply
Steven Hamilton IIPro Member
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
12y
@Duncan Taylor ,

Good job.
[email protected]224-381-2660
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Filipe Matos
Investor · toronto, Ontario · Member since 2014 · 115 posts · 8 votes
12y
Originally posted by @Bill Gulley:

Originally posted by @Greg Rulfs:
I've heard Robert Kiyosaki say that ideally he would never sell, rather, build equity, refinance and buy more properties. He would be referring to buy and holds. I like the idea in theory...
I can't speak to the tax/estate implications.

Not really wise advice from a guru. That can be a good way to get underwater, rents fall, cash flow goes down, caught with long term debt. If you look up most of the gurus, you'll find that those that didn't go to jail have been in bankruptcy, some have done both. Time is a factor. Buy, refi, repeat is a good strategy early on, later on you'll have other factors to consider. Can't really assume that in 50 years your third or fifth mortgage will be working well for you or your heirs. :)

I do not entirely agree, it does not matter if it becomes cash flow negative. The objective , like it says above is to invest in more properties. Just make sure the total cash flow increases after investing the refinanced money.

Property 1 was cashflowing +250, after refinancing starts losing 50 a month, if the new property cash flows +500, your new total cash flow is now +400, almost double than before, I would do this any time.

Also, its preferable that you buy properties that cash flow or at least break even with 100% financing, that is now one of my parameters on my investments, it forces you to be patient and wait for the best deal possible, it makes the investment safer even if something goes wrong. This way your properties at 80% LTV will hardly ever be cash flow negative.

Robbert might be a Guru and good salesman (he tries hard to sell his training courses), but until now most of the stuff he says makes sense. I did not read any of his books , but I can only say good things from the youtube videos he posted.

I wished most of the authors were like him. When you have guru's talking about getting rich fast you should be afraid of them, Robbert does not talk about getting rich fast.
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Filipe Matos
Investor · toronto, Ontario · Member since 2014 · 115 posts · 8 votes
12y
Originally posted by @Duncan Taylor:

Originally posted by @Jerry W.:
Ah @Duncan Taylor , I see now. You took the sneaky route to avoid taxes. You took advantage of the tax laws that you can only use once, then educated your children so they know how to do the same. Very sly, I hope the government doesn't try to close that loophole.

One of the few advantages of having a Congress full of millionaires is their long term goals are very safely in line with mine regardless of party affiliation. ;-)

well said:)
0 Reply
Filipe Matos
Investor · toronto, Ontario · Member since 2014 · 115 posts · 8 votes
12y
My plan is:

- buy and hold forever the best performant properties

- keep refinancing as long they are cash flow positive and enjoy life, and enjoy the boring and steady cash flow.

- I do not need to be stressed if I have sufficient retirement funds, cash flow will be my retirement fund.

Another option would be to sell everything and provide second mortgages at 12%. You will still get steady income from interest payments.

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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
You're certainly guru sold.

Buy and hold forever, do you understand the concept of functional obsolescence neighborhood maturity, external obsolescence or depreciation, physical depletion and obsolescence?

Sounds like you're on the paid staff.

Sounds good, there is a great lack of understanding of reality, business and economic cycles, property management, effects on properties long term.

A paper tiger of sorts, let me know how over leveraging works for you 20 years from now. :)
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Matt R.
OP
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
Originally posted by @Bill Gulley:
You're certainly guru sold.
Buy and hold forever, do you understand the concept of functional obsolescence neighborhood maturity.

A paper tiger of sorts, let me know how over leveraging works for you 20 years from now. :)

Bill, those are good points and things to consider. How you exit is always on the table I would think. Whats the longest you have held?

Thanks,

Matt

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Dustan Marshall
Investor · Hamilton, OH · Member since 2013 · 139 posts · 27 votes
12y
@ Duncan Taylor

Forgive me, but what is GRIT GRAT and GRUT
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